Tips to increase your chances of meeting your financial goals

Jonathan Lemco of Vanguard Investment Strategy Group and Vanguard Chief European Economist Peter Westaway offer tips for what investors can do to increase their chances of meeting their financial goals.


Rebecca Katz: Terry, in Des Moines, Iowa, says, “Based on the thoughts of where we’re heading, what is your investment advice for Vanguard clients?” We talked about it a little bit with bonds. You’ve said for young investors diversify stocks and bonds. Overall, what would we say to investors who this is quite unsettling everything we’re going through? Especially later this week the markets are quite volatile.

Jonathan Lemco: Diversification is the obvious one and we talked about that. But keeping, and particularly for younger investors, a long-term perspective and, as best you can, detach yourself from the day-to-day changes in the markets. It’s humanly impossible in some ways, but try and not be emotionally involved in whether the market is up or down in a given day. Go on and live your life. And with the knowledge that if you’re broadly diversified and you have reason to be confident where your investments are and on a regular basis you continue to invest, the likelihood is that you’ll do well. Will there be problems along the road? Of course, but, again, that’s the point of diversification. But keeping that long-term perspective over time and sort of trying to move on without thinking about this all the time could make a big difference.

Peter Westaway: And the other really important point, before you even think about how you’re going to invest your money, is make sure you save. Because what’s critical about this new low interest rate environment is in order to generate the same income in retirement as you might have done in the past, you’re going to have to save more because the compound interest just isn’t going to get you the same amount. And that’s before you even take into account the fact you might be living longer so you’re going to have to save even more on top of that. So it’s a slightly tough message for people. And one of the things that we hear all the time, and I’m sure it’s true here in the US, but our clients in Europe say this all the time is there’s this temptation because of low interest rates to start moving along the risk spectrum to start trying to grasp for higher yields, high riskier assets and so on because that’s the only way to generate this income. And it might work, but it’s a risky strategy by definition. And that’s the danger, I think, that people have unrealistic expec- They don’t modify their expectations and so they think that they can just get what they would have done before.

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